“Our mantra was integration, communication and proactivity—those were the pieces missing in our virtual family office,” says Harrison Hobart, who serves as one of the family trustees. The family determined that in order to achieve these goals, they needed to find a firm that could offer more comprehensive family office services.

“Our mantra was integration, communication and proactivity—those were the pieces missing in our virtual family office.”

Hobart explains that, because the family is spread out geographically, the advisor’s location was not a central concern, but the family intended to search for a firm in a major financial center. Initially, they had a bias against large firms because they had found it frustrating to deal with a corporate custodian, but soon more qualitative issues, such as finding a firm where the business model could serve the family’s needs over time, became more important. Also, the significant investment in time, effort and money required to conduct the search made it clear to the family that whatever decision they made should be a lasting one.

To create the due diligence team, Hobart invited the family’s lawyer, two trustees and other family members to participate. From there, they developed specs and screened candidates. A group of 12 family members interviewed those firms that made it to the short list, and eventually they narrowed the field to two or three. At that point, the family shared information freely, providing the finalists with family trees, legal structures, asset allocation and background on the performance of investment managers.

“We wanted the burden to be on the firm to show us if they wanted the business,” Hobart says. “And we wanted to test their intellectual horsepower, their ability to come up with value-added ideas and to think on their feet. We wanted to see what they would do with our trust documents.” In the precommitment stage, U.S. Trust analyzed the family’s situation, including its investment process and performance, as well as its ownership structures. It provided specific recommendations that were very impressive, Hobart notes.

As a result, despite the family’s initial bias against large firms, they selected U.S. Trust. “The small firm I thought was the lead candidate early on faded in the backstretch when the principal was out of town and the person who would’ve been the lead couldn’t make decisions,” Hobart says. “Furthermore, we expected smaller, leaner shops to be more lenient in pricing and found that, in fact, larger shops have more flexibility. Our experience is an endorsement of a patient process. The right fit emerged over time.”

An Insider’s Point of View
Not until he neared retirement did the former chairman of a major New York-based money center bank start paying enough attention to his own personal finances to realize he needed help. “I was like the doctor who neglects his own health,” he admits.

Despite assistance from his employer’s private banking group, he soon concluded he would have to go elsewhere to find the comprehensive servicing he required. “I was looking for all those things you would ask a CFO to be on top of—combination chief financial officer, treasurer and an accountant all wrapped into one,” he says. “I also wanted someone who would sit with me when I was talking to other advisors and be on my team.”

After interviewing a few select firms, he chose TAG Associates, a New York-based multifamily office. Part of the attraction was the firm’s open architecture investing approach. “I think big investment banks peddling tremendous amounts of product, as well as their advice, have a very hard time keeping the two separate by definition,” he says. “You want to make sure that the advisor’s interests are aligned with yours.”

TAG’s expertise and location, as well as its willingness to work closely with other family members, were other key factors. “It’s in my nature to be very open with my children about what the issues are,” he says. “When they are in town for Thanksgiving or Christmas, I arrange for them to spend some time alone with the TAG people. And they feel very comfortable with the advice they receive.”

Blending Culture with Performance
More and more, the threshold for private family office feasibility is moving to $200 million in liquid assets. However, as two families I know concluded recently, there is more to the decision than assets. Although they have taken different paths, both families have operated dedicated family offices for many years, and both have recently found the multifamily office model to provide a good alternative.

In 2003, the Wyman family merged its Connecticut-based family office operation, Eagle Capital International, with Asset Management Advisors (AMA), an affiliate of SunTrust, in Florida. The decision to find an alliance partner was rooted, in part, in the desire to add rigor to Eagle Capital’s investment process, in the rising cost of top-notch talent and in the lack of an acceptable succession plan within the family, says Juan Meyer, former CEO of Eagle Capital and now executive vice president of AMA.

“The family council became engaged in the process of defining which criteria were important,” Meyer explains. “Since investment expertise was an area where we needed to bulk up, that was high on the list. Culture was very important and so was chemistry. We didn’t want to get involved with a large financial institution, and we wanted to retain our existing staff.”

Meyer recalls that, among the alliances his family considered, there was one family office with excellent chemistry that they liked very much, but it was five to seven years behind Eagle in sophistication. Another firm offered some synergy but was looking for an alliance partner that would help build a family office arm for its investment company. Eagle was not prepared to enter into an entrepreneurial venture of that sort.

Eventually Eagle found the right blend of chemistry and shared goals in AMA. The family was initially wary of AMA’s ties to SunTrust, one of the largest banks in the Southeast, but when it became clear that the two operated at an arm’s length, that affiliation became a nonissue. Moreover, the Wymans had a preexisting relationship with AMA’s founding family, which added a certain level of comfort. Site visits to AMA’s offices sealed the relationship. “Culture and trust were important deciding factors,” Meyer says. “They are top advisors in the investment field. They have open architecture, and that’s compatible with us. But when everything is said and done, we like and trust each other. At the end of the day, it’s the nontechnical elements that make the difference.”

The second family, now in the process of identifying a multifamily office to hire, is motivated by three factors. First, the family office business has become more complicated in respect to compliance and investment management. Second, the cost to bring the 20-year-old family office’s capabilities up to a suitable level to continue to operate independently would be prohibitively expensive. Third, the principal family member involved in operating the family office has no logical successor for the CEO position.

The family is seeking estate planning, tax planning and assistance with intergenerational planning. But equally important is a cultural fit. “We want an office that our family feels comfortable with and wants to go to,” says the family member responsible for the search. “And we want a firm that will allow us to maintain an active oversight role. Even though we are subcontracting the family office function, we want to remember that this is a family business and keep the family involved,” he says.

More important than size is how the family fits into the firm’s client base. “I’m not sure I want to be the biggest client. I don’t mind learning together, but I don’t want to be an experiment. Then again, I don’t want to be the smallest for fear that we might not get the attention we need. We want to fit in their comfort zone,” he says.

Getting the Lay of the Land
Not all firms serving the private client marketplace are created equal—nor are the needs of wealth owners. The lines of demarcation are often difficult to identify, but, in my view, there is a hierarchy of business models. Each offers a progressively complex set of core services appropriate for different levels of wealth, with some overlap.

At the base, there are pure investment managers and brokers offering asset class-specific portfolio management in separate accounts, mutual funds or other commingled accounts. Investment advisory firms and investment consultants occupy the next level, adding strategy and policy development, asset allocation and manager selection, performance measurement and analysis, and investment risk management to the mix. Some wealth management firms and private banks offer the investment diversification services of the former along with basic tax and estate planning, cash flow management, financial planning and guidance on philanthropy. If our assets are in the $1 million to $20 million range, these firms may be adequate, but we will need to oversee their work.

Wealth advisory firms and trust companies commonly evolve over time to a multiservice platform in response to client demands. They offer more sophisticated tax and estate planning and add oversight of tax compliance, fiduciary services and tax sensitive asset management.

Some of these advisory firms evolve into multifamily offices, offering integrated wealth planning, oversight of fiduciary services, risk management, lifestyle management and assistance with strategic philanthropy, family continuity and governance. This is the most comprehensive form of wealth advisory firm, offering business owners and multigenerational wealth inheritors a broad array of services, coupled with the highest levels of client interaction and strategy implementation.

It is too soon to know whether the choices made by the families mentioned here will provide a good long-term fit. We do know, however, that the criteria and processes they used gave these families a thorough understanding of the firms’ strengths and weaknesses and a solid foundation for an informed decision. Each family established their priorities and developed specific criteria through consensus. From there, they built a shortlist of firms for consideration. To conduct due diligence, they interviewed key personnel, visited the firms’ offices and sought a demonstration of their expertise.

When wealth is a not a burden, and instead provides freedom, opportunity and deeper bonds between family members, you have been successful in your search.

Illustration by Kevin Spaulding.

Sara Hamilton is founder and CEO of Family Office Exchange LLC.